Tough job market sending many baby boomers into early retirement with meager funds

Emily Roach

Tuesday

Jul 24, 2012 at 12:01 AMJul 24, 2012 at 1:04 PM

As baby boomers swell the ranks of the 60-somethings, some are smacking into a job market that is sending them into early retirement with meager funds on which to live out their days.

People who lost their jobs in the past five years have faced a labor market that has been brutal. And older, long-term unemployed workers are far less likely than younger counterparts to latch onto something new.

As the unemployment rate fell this year, economists speculated that early retirement was reducing the ranks of unemployed older workers, thus helping to shrink the labor force. That shrinking labor force — not a growth in jobs — was bringing down the unemployment rate.

Andrew Berman, 61, found himself retired to Florida, although that wasn’t his plan.

A COBOL programmer, Berman was laid off four years ago by a Massachusetts company. Retraining and starting over in such a technical field wasn’t viable, Berman said, and he blew through his nest egg paying the bills while he looked for an alternative.

"I’m taking care of my mother," he said. He and his wife now live with the 86-year-old in her suburban Lake Worth condo.

"With lengthy bouts of unemployment, some retirement-age workers have dropped out of the labor force all together, even though they would take a job if one were available," the Wells Fargo Economic Group said in a recent report.

Economists Courtney Coile and Phillip Levine of Wellesley College studied the effects of a recession on retirement. They found that a recession in the years leading to retirement causes a significant loss in income 10 years later.

For people who take Social Security early, the lower monthly payment affects them for the rest of their lives. For those who lost value in their investments just before retirement, they lack the time to make it up.

The economists charted what would win between the dueling pressures of working longer to recoup retirement funds or retiring early because of a lack of job prospects.

Their conclusion: The weak job market would drive more people out of the labor force than the stingy stock market would keep in.

"When there is an economic downturn such as the current economic crisis, there is an increase in retirements, presumably because some older workers are laid off, have difficulty finding new jobs, and may give up and retire earlier than planned," Coile said.

Retirement plans seem to be taking two tracks these days: Workers who have good jobs are hanging on an extra few years to rebuild investments, and people who don’t have those jobs are raiding retirement funds early as they deal with a non-working lifestyle.

Coile points out, as does Sara Rix, an AARP senior strategic policy adviser, that the pre-recession trend had been for people to retire later.

Because many employers switched to 401k programs instead of standard pensions, the responsibility of saving for retirement shifted to the employee. People have stayed in the work place longer to save more money, and because they are living longer in better health. And, of course, the rising age at which full Social Security benefits are available has encouraged people to work longer.

A recent AARP survey found many people have changed their plans about when they plan to retire, and that is because of the recession, Rix said. People’s home values dropped, putting a significant hit on their nest egg, and the market uncertainty makes them worry about their investments.

Still, people in their 50s and 60s can’t be assured of good health or job availability, and many do not work as long as they planned, Rix said.

A big factor in the different retirement choices is income level.

Lower income workers often have a career in a more physically demanding field and transition into a bridge job in later years that usually is less skilled and pays less. Economic recession causes a much more competitive market for those bridge jobs.

Higher income workers usually have more education and work in a white collar, office atmosphere. Because the job is easier on them physically, they have the ability to work at the higher pay job into the later years of their career.

Economist Diane Macunovich of the University of Redlands has studied the baby boomers’ movement through the labor force and how they affected other age groups. When they were young, baby boomers squeezed out older workers who wanted part-time jobs at the end of their careers, pushing down the average age of retirement.

The retirement age went back up once baby boomers got past college and entry-level jobs and into their core working years.

And now that they are in the age group that may be seeking those part-time jobs to extend the years before retirement, baby boomers are again squeezing out other age groups such as workers in their 20s who are experiencing unemployment levels several percentage points higher than the general labor force.

However, if a baby boomer cannot get that bridge job, he or she may retire early, Macunovich said.

"There’s going to be a lot of competition for those less skilled jobs," she said. "I would expect the age of retirement might come down again because of that."

Berman would take another job, even though he’ll probably start on Social Security once he turns 62 in December.

"I don’t think I’m going to be able to just do nothing," he said of the years of retirement stretching before him.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.